Bailed-out banks, insurers, and automakers are a sore spot for millions of Americans hit hard by the financial crisis. Candidates running in November, especially those waving the Tea Party banner, are using "no more bailouts" as their mantra to attract voters. Yet there's a disconnect between the political rhetoric and the facts on the ground.
The Treasury Dept.'s investments in banks through the Troubled Asset Relief Program have done surprisingly well. Lower-than-expected losses on auto and insurance company rescues, as well as the financial markets' return to strength, mean the $700 billion rescue plan launched in October 2008 will cost less than one-tenth its initial price tag. "The TARP may well be the best and most useful federal program that has ever been despised by the public," says Douglas J. Elliott, a fellow at the Brookings Institution and a former JPMorgan Chase (JPM) managing director.
As Treasury gets ready to shut down the spending phase of the TARP program on Oct. 3, it now expects to turn a $16 billion profit on the $250 billion it plowed into banks in 2008 and 2009. And TARP's final price tag is expected to be about $50 billion, according to an Obama Administration official. The Congressional Budget Office in August had estimated a $66 billion loss. Treasury Secretary Timothy Geithner is expected to brief President Barack Obama on Sept. 30 on the brighter outlook.
"When all is said and done, this program will be viewed as one of the most effective and least costly forms of assistance" in the financial crisis, says Herbert M. Allison Jr., the former Merrill Lynch (MER) executive and Fannie Mae (FNM) official who has shepherded the rescue effort for Geithner and leaves the job on Sept. 30.
Despite the turnaround, TARP remains a political career-killer. Numerous candidates have lost their primaries this year in part because they voted for the bill under President George W. Bush, who urged lawmakers to approve it or risk a global financial calamity.
The victims include Senator Bob Bennett (R-Utah), who lost a May primary to Tea Party-backed lawyer Mike Lee at a state convention where attendees jeered Bennett as "Bailout Bob." More recently, Missouri Secretary of State Robin Carnahan, a Democrat running for the Senate, has taken to calling her opponent, Representative Roy Blunt, "Mr. Bailout" for helping round up Republican votes when the TARP bill was on the House floor. Even Carna-han's brother, Russ Carnahan, voted for the measure as a Democratic member of the House. "Unfortunately, the public hates the banks so much that it cannot accept that a program that did the banks so much good could also have been a real boon to the public," says Elliott.
Now many candidates who won tough primaries are calling for TARP's dissolution. House Republicans vow to cancel the program. Ending it now, however, would have little effect other than to deprive homeowners of getting help, now that TARP's focus is shifting to managing the government's investments, collecting repayments, and preventing home foreclosures. In reality, the program was pretty much shut down in July when Congress passed the financial regulation overhaul. That law bars new spending with TARP money and cuts the program to $475 billion, most of which has been committed.
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